ACC 311 Lecture Notes - Lecture 14: Historical Cost, Write-Off, Markdown

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apricotwoodchuck413

31 Mar 2018

School

University of Miami

Department

Accounting Business Administration

Course

ACC 311

Professor

andrewmcmartin

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Document Summary

Companies abandon the historical cost principle when future utility of asset drops below its original cost. Net amount a company expects to realize from the sale of inventory. Estimated selling price in ordinary course of business less reasonably predictable costs of completion, disposal and transportation. Report inventory on balance sheet as nrv. Debit cogs for write-down of inventory to nrv. Debit loss due to decline of inventory to nrv. Can also use allowance account credit that instead of inventory. Close that account when company sells all those goods and open. Exception to nrv method for those companies using lifo or retail inventory methods. Instead of comparing cost to nrv, created a designated market value. Sales value - cost of completion = nrv - allowance for normal profit margin (% of sales) = nrv less normal profit margin. Lower limit: nrv less a normal profit margin. Prevents over or understating inventory with these floor and ceiling limits.

Related Questions

ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost.âPurchases are $350,000.

Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment.

Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.â

Please Help! Iâm not sure about the Loss method for accounting for adjustments of inventory to market value.

I have the following:

BOOK VALUE (HISTORICAL COST) = 75,000

NRV = MV+ESTIMATED COSTâ

110,000 + 15% of 110,000 = NRV 93,500

There is no adjustment required since historical cost is less than NRV.

You can only make allowance for losses not profit. Is that correct or do I need to make an entry for $16,500?

chocolateferret211

Shamrock Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2017. Jim Alcide, controller for Shamrock, has gathered the following data concerning inventory.

At May 31, 2017, the balance in Shamrockâs Raw Materials Inventory account was $456,960, and Allowance to Reduce Inventory to NRV had a credit balance of $27,660. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Shamrockâs May 31, 2017, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle.

Cost Sales Price Net Realizable Value

Aluminum siding $78,400 $71,680 $62,720

Cedar shake siding 96,320 105,280 94,976

Louvered glass doors 125,440 208,768 188,496

Thermal windows 156,800 173,376 156,800

Total $456,960 $559,104 $502,992

Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017. Balance in the Allowance to Reduce Inventory to NRV $______________

For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to NRV. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) The amount of the gain (loss) $__________________

peachwasp164

1-Nash Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2017. Jim Alcide, controller for Nash, has gathered the following data concerning inventory. At May 31, 2017, the balance in Nashâs Raw Materials Inventory account was $456,960, and Allowance to Reduce Inventory to NRV had a credit balance of $27,660. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Nashâs May 31, 2017, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Cost Sales Price Net Realizable Value Aluminum siding $78,400 $71,680 $62,720 Cedar shake siding 96,320 105,280 94,976 Louvered glass doors 125,440 208,768 188,496 Thermal windows 156,800 173,376 156,800 Total $456,960 $559,104 $502,992 -Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017. Balance in the Allowance to Reduce Inventory to NRV $ and The amount of the gain (loss)$

2-The records for the Clothing Department of Novakâs Discount Store are summarized below for the month of January.

inventory, January 1: at retail $24,600; at cost $17,000

Purchases in January: at retail $138,400; at cost $94,259

Freight-in: $9,100

Purchase returns: at retail $3,000; at cost $2,300

Transfers in from suburban branch: at retail $13,100; at cost $6,900

Net markups: $8,000

Net markdowns: $3,900

Inventory losses due to normal breakage, etc.: at retail $300

Sales revenue at retail: $95,400

Sales returns: $2,400 Compute the inventory for this department as of January 31, at retail prices.

Ending inventory at retail		$
Ending inventory at lower-of-average-cost-or-market

ivorycrab675

ACC 311 Lecture Notes - Lecture 14: Historical Cost, Write-Off, Markdown

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